Shares of
NVIDIA Corporation
NVDA
have outperformed the S&P 500 over the past year. Shares of the graphic chip maker have rallied approximately 161.8%, significantly higher than the S&P 500’s growth of about 67.5%.
NVIDIA is benefiting from the coronavirus-induced work-from-home and learn-at-home wave. Strong growth in GeForce desktop and notebook GPUs is boosting its gaming revenues. Moreover, a surge in the Hyperscale demand remains a tailwind for the company’s Data Center business. Further, solid uptake of artificial intelligence (AI)-based smart cockpit infotainment solutions is a boon.
Strong GPU Adoption
NVIDIA’s revenues doubled, while its earnings grew more than three times in the last four fiscal years, mainly driven by the strong adoption of its GPUs in the datacenter and gaming markets.
Datacenter presents a solid growth opportunity for the company. As more businesses are shifting to cloud, the need for datacenters is increasing immensely. To cater to this huge demand, datacenter operators like
Amazon
AMZN
,
Alphabet
GOOGL
, and
Microsoft
MSFT
are expanding their operations across the world, which is driving the demand for GPUs.
This bodes well for NVIDIA. The company’s revenues from the segment increased to $6.7 billion in fiscal 2021 from a mere $339 million in fiscal 2016.
Moreover, better visualization and speed are needed for a thrilling gaming experience, which NVIDIA successfully provides through its portfolio of Pascal architecture-based GPUs. Furthermore, with the emergence of Gaming-as-a-Service (GaaS) and massively multiplayer online games (MMOG) concepts, the demand for GPUs has been surging exponentially.
Notably, the gaming segment’s revenues reached $7.8 billion in fiscal 2021 from $2.8 billion in fiscal 2016, reflecting more than two-fold growth.
AI Proliferation Provides Solid Growth Opportunities
NVIDIA GPUs are gaining rapid traction with the proliferation of AI. The increasing use of AI tools in datacenter, automotive, healthcare and manufacturing industries is expected to drive the demand for GPUs in the long haul.
Notably, NVIDIA is already a dominant player in the datacenter market. The company also enjoys a first-mover advantage in the AI field and its expanding product portfolio is capable to leverage the growing adoption of AI in various industries.
Additionally, the Arm Holdings acquisition is expected to aid NVIDIA in offering an end-to-end ecosystem of technology across the data center, IoT, autonomous vehicles and mobile domains. The company is now well-poised to upscale its inference technology, drivers, and accelerators by utilizing Arm’s robust architecture and chip designs.
Conclusion
NVIDIA is down 16.4% from its all-time high level of $614.90 attained on Feb 16, making the stock more affordable for investors. The stock trades at a one-year forward P/E of 38.77X compared with its five-year average of 68.01X.
Nonetheless, NVIDIA trades at a massive premium to the Semiconductor-General industry’s forward P/E multiple of 22.4X. Therefore, many would argue that the stock is a risky bet. However, we beg to differ due to its consistent financial performance and strong growth opportunities in various untapped markets like automotive, healthcare and manufacturing over the long term.
Additionally, NVIDIA has favorable combinations of a
Growth Score
of B and a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here
.
Per the Zacks’ proprietary methodology, stocks with such favorable combinations offer solid investment opportunities.
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